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5 Strategies to Consider Before Year-End

5 Strategies to Consider Before Year-End

| November 10, 2022

The 2022 market has been challenging. The good news is, there are strategies that can help you take advantage of a lower market and high volatility. Timing is important, though. So before it’s too late, ask yourself if any silver linings might be available to you and your family before the clock strikes midnight on New Year’s Eve. Here are several that might help you save on taxes this year.

  1. Buy low.

Sounds easy, right? It's hard to do in practice, even for the pros. Consider putting extra cash to work in investments with high appreciation potential, or even ones with an improved yield. We aren’t talking about market timing here, but if you have cash above what you need for emergencies, then dipping your toe into stocks and low-cost funds today should prove to be a wise move when looking out a few years or more. According to history, on average, stocks rally nearly 40% in the three years after a major decline (like the one we have seen this year.)

Big Returns Come After Steep Losses

  1. Fully fund your tax-advantaged accounts.

We’ve made the case that investing after a big downturn is often an advantage in the long run, but in which accounts should the money go? We suggest those offering tax advantages. Roth IRAs, Traditional IRAs, Health Savings Accounts, and other retirement plans are great choices.

You might even consider accelerating or pulling forward retirement contributions. You can do that by making 2023 contributions at the very start of next year. Before you front-load investments into your 401(k), though, be sure to check with your employer to ensure they have a “true up” on the match so you do not miss out on any company contributions.

Also, consider completing any regular or backdoor Roth IRA contributions now Roth conversions during a down market may also be especially advantageous. Finally, be sure to set a reminder on your calendar to make 2023 Roth contributions, too.

  1. Share.

A wealthy philanthropist once told us that giving diligently can feel almost harder than making money to begin with. Taxes matter: where you give from plays a role, when and how much to give is critical, and simply analyzing all the possible tax scenarios is important so you and your family make the most of the donation. There are several techniques for giving effectively and efficiently, including direct gifts of highly appreciated shares, using donor-advised funds, and, if you are 70 ½ or over, “qualified charitable distributions” from your retirement accounts.

  1. Get a bit familiar with the tax code and calendar.

Tax rates are scheduled to rise in 2026. While we don’t know exactly what those brackets will be, it could make sense to take steps to accelerate income, so you pay today’s likely lower rates. We get it – many of us are told to NEVER pay taxes we can avoid. In this case, however, if you can pay them early at a lower rate, in many cases the positive impact can be hundreds of thousands of dollars, sometimes millions.

  1. Review gains and losses.

Tax loss harvesting is one of the hidden benefits of an underperforming stock and bond market. Some techniques allow us to “harvest,” or realize, losses to offset current and future capital gains, and sometimes ordinary income as well.

The Bottom Line

Market declines are part of the investing landscape. Don’t let them get you down. Instead, consider optimizing the opportunities they can present. We can work with you to see what makes the most sense for your financial situation and long-term plan.

Thanks for looking, and if you are interested in discussing some final moves, please reach out sooner rather than later.  Things can get very busy at year end. 

Your ISC Team